Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
4959937 | European Journal of Operational Research | 2017 | 44 Pages |
Abstract
This paper presents a natural gas market equilibrium model that considers uncertainty in shale gas reserve exploration. Risk aversion is modeled using a risk measure known as the Average Value-at-Risk (also referred to as the Conditional Value-at-Risk). In the context of the European natural gas market, we show how risk aversion affects investment behavior of a Polish and a Ukrainian natural gas supplier. As expected, increased risk aversion leads generally to lower investment, and a larger share of investments in the form of lower risk alternatives, i.e., conventional resources. However, in our market setting where multiple risk-averse agents each maximize their own profits we do observe some counter-intuitive, non-monotonic results. It is noteworthy that in a competitive market, risk aversion leads to significantly lower reserve exploration, which may be interpreted as a credible threat by a large dominating supplier (such as Russia). A threat to flood natural gas markets could deter importing countries from extending their own reserve bases.
Related Topics
Physical Sciences and Engineering
Computer Science
Computer Science (General)
Authors
Ruud Egging, Alois Pichler, Ãyvind Iversen Kalvø, Thomas Meyer Walle-Hansen,